Is HUD increasing the FHA down-payment requirements? There are a lot of rumors going around about FHA mortgages, minimum credit scores and higher down-payments so we wanted to clear the air with the FHA Commissioner. In a recent interview, the Federal Housing Administration Commissioner Bob Ryan said, “US regulators should not forget factors like loan to value and credit scores.” Ryan was referring to the new credit score guidelines for the FHA mortgage programs.

FHA made it clear that borrower with low credit scores will be required to have more equity to refinance with FHA. New home buyers who have less than stellar credit scores will have to come up with more money for the down-payments. For example if first time home buyer had a credit score of 580 the underwriter may require a 10% down-payment rather than the 3.5% that most home loans insured by FHA have. Ryan continued, “Higher FHA down-payments will not guarantee timely mortgage payments from the borrower, but we should see less foreclosures and delinquencies because homeowners seem to take their monthly mortgage payments more seriously when they invest more money into their home.” FHA made their goals known at the recent hearing that focused on mortgage risk retention. “This definition has the potential to create false- positive situations,” Ryan told lawmakers.

Groups Petition FHA for More Aggressive Home Loan Guidelines

FHA was given a waiver for the new home loan rules outlined in the Dodd-Frank home finance bill. This mortgage exemption could take the pressure of lenders who are originating FHA mortgages. However, many real estate companies and consumer watch-dog groups contend the new mortgage rules are not fair as it could restrict credit while making homeownership more difficult for many prospective borrowers. In an effort to stimulate the housing market, this group wants finance regulators to reduce the amount of the down payment rather than raise it. Clearly this coalition is at odd with FHA as guidelines continue to tighten for new home buyers. With FHA rates still below 5% on 15 and 30 year loans, the motivation for home buying is strengthened even more. Today the current 30-year FHA mortgage rate is available to qualified borrowers with no points at 4.75%.

Brokers and lenders remain nervous as FHA loan requirements may continue to increase in 2011. While fraud risk had trended down dramatically through 2008 and even into early 2009, in mid-2009 and 2010, it started to creep back up again, according to Frank McKenna, vice president of fraud strategy for analytics provider CoreLogic. The increase is a result of high-risk government lending programs like FHA and the Home Affordable Refinance Program. “A lot of those programs are bringing risk back into the market,” McKenna said in a phone interview following the CoreLogic Mortgage Fraud Consortium Members’ Meeting in Chicago. “Lenders said their biggest concern this year is ‘flipping’ again. They are concerned with all of the distressed properties out there like short sales and foreclosed properties. There are a lot of investors that are taking advantage and flipping the properties the same day for sometimes 50%-100% more than the property sold for. They are seeing that as a very big problem right now.”

FHA Mortgage Rates Fell Below 4% on 30-Year Fixed Rates

Government experts from the Federal Bureau of Investigation, Financial Crimes Enforcement Network, Internal Revenue Service and Financial Fraud Enforcement Task Force were on hand to discuss policies and trends. FHA lenders like Shawn Downs, believe that “HUD is doing the best thing for long term security in regards to keeping the FHA loan programs a viable option.” Downs continued, “FHA loans in Colorado are a great option for first time homebuyers, but if too many borrowers default then the program won’t be around for the next generation.”

FHA lenders indicated that in 2010 FHA fraud is “the area that they are focusing in on,” McKenna said. While there is strong underwriting, it doesn’t stop the fraud from happening. FHA is “still very attractive” to the fraudsters and fraud rings because they like to recruit straw borrowers. “FHA guidelines, in terms of who qualifies and how much they have to put down, are a lot more lenient than the typical type of conforming programs. They can recruit young college graduates who don’t have a lot of credit history or people who don’t have great credit history and they only have to put 3% down.”

Why would HUD decide to raise FHA mortgage costs at a time when the economy and the housing sector nationally are struggling so much? Just a few years ago, FHA home loans were considered a financing dinosaur. FHA loans were nearly considered obsolete because they were time-consuming and more regulated, and sellers were usually not comfortable with FHA financing being written into the sales contract, because they knew at the time that the appraisal requirements and timeline for underwriting would drag out the process for closing the loan. Times have changed, and FHA has automated the FHA home loan process.

Today, an FHA mortgage remains the only low down-payment lending product, requiring just 3.5% from borrowers. Just five years ago, FHA loans had a market share of only 5%. In 2010, FHA lending accounts for about 30% of all home loan originations nationally. This surge of mortgage loan volumes has increased the pressure on the FHA Mortgage Insurance Fund. FHA is required to maintain this emergency fund of reserves above 2% based on all of its insured mortgages. This year we saw the reserves fall well below the 2% minimum and HUD has been forced to take drastic steps, like tighten the FHA guidelines.

FHA Mortgage Lending Back in Style

In an effort to preserve the sacred FHA loan program, HUD announced it will be raising its annual mortgage insurance premium from 0.55 % of the mortgage amount to 0.90% (for loan to values higher than 95%) or 0.85% (for LTVs lower than 95 %). This insurance premium hike will go into effect, October 4th, 2010. In an effort to save face, FHA will be lowering their upfront mortgage insurance to compensate homeowners for their rising monthly payments. This is good news for new homebuyers because the fees are dropped to 1% of the loan amount from 2.25%. Overall, it looks to add $300 million a month to the insurance fund by taking these actions.

FHA Borrowers to Pay More Monthly

So what does that mean to FHA buyers come October? It means they will be paying more each month. For example, let’s take a $250,000 purchase. Under the current FHA mortgage insurance framework, the upfront premium would be $5,428 for a total loan amount of $246,678. The monthly mortgage insurance would be $110.57. Take an interest rate of 4.625%, and the principal and interest payment would be $1,268.27. Add the $110.57 and you get $1,378.84.

Under the new FHA requirements, the new upfront amount would be about $2,500 on a FHA mortgage loan amount of $250,000. However, the monthly insurance jumps to $180.94. Take the same interest rate, and the principal and interest payment decreases to $1,252.76. But with the higher premium, that total payment comes in at $1,433.70, an increase of almost $55 a month. To a borrower who is just barely qualifying, that can have an effect. It also puts into play taking another look at private mortgage insurance as an alternative for the borrower. These types of adjustments shouldn’t be surprising as FHA tries to adjust to the marketplace. It recently released its quarterly report to Congress, and it shows just how much FHA has become a part of the mainstream when it comes to mortgage lending.

Yesterday, the U.S. House of Representatives approved a bill to inject finances into the FHA by approving the authority to raise FHA mortgage insuance premiums. The FHA reserves are low and it created significant cash flow problems that the government was forced to deal with. It is no secret that Federal Housing Administration is strapped for cash because all of the recent FHA defaults that continue to mount. The government also considered a measure to raise the FHA mortgage limits used to develop some apartment buildings. In a 406-4 vote, lawmakers approved legislation to strengthen the finances that back the FHA home loans by giving it authority to nearly triple the annual fees it charges to borrowers, known as mortgage insurance premiums. Read the original article > House Approves FHA Bill to Reestablish Finances

FHA has been in the news a lot lately. Yes, FHA mortgage rates are low, but the FHA mortgage program as a whole may be in jeopardy of existence. Many FHA blogs have posed the reality that FHA financing is at serious risk to be shut down. In this political climate it becomes obvious that anything is possible because Congress must pass bills to continue to fund the FHA mortgage programs. FHA first time home buyer loans have been promoting home ownership since the great depression. Even as we discuss their recent failures, the argument could be made that FHA is one of the most successful government initiative in the last century. Read the original article > Is FHA Mortgage Financing in Trouble?

The Mortgage Bankers Association reported that FHA rates should remain affordable in the near future because of concerns in Europe financial problems, but they predict rate hikes in 2011. Most real estate financial advisors agree that low FHA rates are helping the local housing communities recover. Once again HUD has come down hard on FHA lenders over fraud and disclosure negligence. FHA commissioner David Stevens stated in a MBA meeting, “This is a mortgage market surviving purely on life support and sustained by the federal government.” Stevens continued his theme of FHA mortgage reform and made an effort to persuade FHA mortgage lenders to sacrifice the commissions at this time for the good of the industry.

Did you know that FHA mortgage loans are assumable? This means that if you sell your house, the buyers could actually take over your existing FHA mortgage. Using the “assumable” function with FHA loans extends some leverage to a seller that could potentially pass on a FHA mortgage with an interest rate that is locked well below the market.

According to FHA requirements, home buyers may qualify to assume the seller’s FHA mortgage loan. This is an attractive benefit if FHA rates are higher than your existing FHA loan at the time you’re selling your home. FHA mortgage lending programs provide an important service to buyers, homeowners, and housing markets. FHA has been in the news a lot lately because HUD is looking for new opportunities to rebuild the FHA mortgage reserves.

Realtors and mortgage brokers have been utilizing FHA mortgage lending for the last few years. FHA guidelines remain tight in 2010 as DE underwriters are expecting higher credit scores for FHA mortgage loan submissions.

Many first time home buyers are using FHA home purchase loans to get approved to buy their dream home. HUD reported that February delinquent levels for 90 days late FHA home loans dropped from 9.4% in January to 9.2% in February. Many FHA enthusiasts saw this as a supporting indication that FHA lending programs were moving in the right direction.

According to the Mortgage Bankers Association the FHA loan product had a 3.57% home foreclosure rate in the fourth quarter of 2009. That’s lower than the 4.58% home foreclosure rate for non FHA loans. A few years back, HUD created the Neighborhood Stabilization Program (NSP) in an effort to eliminate the stress from regions that high home foreclosure rates and home abandonment. Through the purchase and redevelopment of foreclosed and abandoned homes and residential properties, HUD moves to stabilize the housing markets and local economies. HUD just announced that the definition of “foreclosure” will be expanded to include homes with FHA mortgages that are 60 or more days in arrears, and “abandonment “means the property has a mortgage at least 90 days delinquent.